Rollover or Roll Over

Don't forget no charge for that initial get to know you appointment Tech Loss Financial. It will be complementary to you again their number six oh eight four four two five six three seven joining us this morning. As mentioned Malia Quavis and Kyle Kite. Malia, how the heck have you ben my friend, very.

of things mentioned the website COSS Financial dot com. Don't freak can listen back to this and previous shows podcasts all online at that website class financial dot com. That's coss k l aas financial dot com. You can also sign up for the weekly Market Pulse newsletter right online again. They're telephone number six so eight four four two five six three seven. Later on the show, we're going to be doing the Class Quiz question the week, another chance

for you to win a fantastic prize. This week, our friends at Costs Financial have provided a twenty five five dollar gift card to ihop tell you a little bit later on in the program how you can win that little tipto. Oftentimes, just about every week, the question and answer come up during the program, and before we get rolling on this week's conversation, let's actually look back at last week's show, Malia and get the Claws quiz question and answer there as well.

age of sixty five, So Sean, you cannot sign up yet. Okay, take note of that, But congratulations to Pat, and thanks everyone for listening and calling in for answering that question.

by RA. So it's very common that, you know, when you're switching jobs, sometimes these things you kind of forget about once while, and people will come and see us ten or fifteen years later and like, oh, yeah, I had all these old things out there that I forgot about.

So if you have an old retirement account, it's important to understand your options before you may so many people choose to roll their funds into the new employer's plan, which allows for easier account management and avoids immediate taxes or penalties. But there's some other options that you have

out there as well. So the first one, and the one that we probably recommend the least, would be to just cash out the four one K. So while it may seem tempty, to be careful here because there's some significant financial consequences, the big one being that the entire balance of what you cash out becomes taxabile income in the year that you withdraw it, and if you're under the age of fifty nine and a half, you'll likely face a ten percent early withdrawal penalty on top of

federal and state tag and for many many people, you know, if you're under that age of fifty nine and a half and you cash this money out, you're going to lose you know, somewhere in that twenty to thirty percent range between the the penalty and the taxes on it. So one you know some options where this might work is if you only have a small balance, this might not be a big deal, So think of you know, one thousand, two thousand and three thousand dollars. It's not

as big with the penalty and stuff like that. But if you've accumulated a lot of money inside that plan, adding that lump sum to your yearly income could push you into that higher tax bracket as well. So that's part of the reason why we say, you know, it's one of our least recommended options.

the website costs Financial dot com. There tell for number six, SOH eight four four two five, six three seven, don't forget no charge for that initial gets to know your appointment at Costs Financial. It will be complimentary to you. Again they're number six, SOH eight four four two five six three seven, and it joined us this morning with a question. Now I gotta do is pick up phone, give us call six eight three two one thirteen ten.

That's six oh eight three two one thirteen ten. So, Kyle, as you talk about some of the penalties and some of the consequences of doing a four oh one K withdrawal, are there ways to kind of put the genie back in the bottle?

within those sixty days. But you got to remember that generally, when you do a four oh one K cash out, they automatically withhold that twenty percent in taxes, so you're going to have to not only put the money back that they cashed out to you, but also make up those difference in taxes as well. And you can got to keep in mind that you can only do one

rollover per year between those iras. So again these are a lot of the things that we have to be very very careful of, and again why we don't recommend this very often for people. So the next option would be to keep your four one K with your former employer. So again this is where people kind of just forget about it and leave it sit there or they don't take any action. Many come the funds in the plane

and the money can continue to grow tax deferred. But it's getting more and more common that if your balance is under five thousand, your former employer may eventually ask you to move it. So they'll either push it into an IRA for you, or they'll keep you know, sending you emails or letters in the mail that they want you to move it. And while this option keeps it simple,

there's a few drawbacks to this. So the first one is that you can't contribute to the account anymore, so you can't contribute to prior for to one k's, it'd only be current four to one k's or current iras that kind of stuff. And you'll need to monitor your investments to ensure that they align with your risk tolerance. So again, these things can change as you get a

little bit older. Maybe you've left it there for twenty years and you're a different stage of life, and we need to tweak those investments that would be one hundred percent on you. And then most plans offer a limited selection of investment options, so your choices may be restricted.

about paying taxes or anything like that. It's all tax free. It's not a taxable event, so you're good to go in that respect. And there's a couple of additional benefit fits when it comes to a four to one K. Number one is you've got the Aris of protections offering

potential creditor protection. So remember this is where if you're if you are filing bankruptcy things like that, you have creditor protection for retirement accounts, but falls into those Arista guidelines of four to one ks, and your new four to one K maybe you move to a bigger company so they have better investment options or lower fees. This

could be an efficient way to grow your savings. And finally, you want to be mindful of your pretext and WROTH balances because they do need to be rolled over properly into corresponding accounts. So going from a four to one K, a traditional four one K to a WROTH four O on and K that could be a taxable event. So you just got to be very very careful when you're looking at these things.

They're telephone number six so eight four four two five six three seven. You're saying, well, rolling it over a four oh one K into a new four oh one K.

things you need to know about. Linked to the most recent podcast as well, and that's free to you at Classfinancial dot com. Speaking of things that are free to you, that first appointment no charge, It is complementary. All I gotta do is make that appointment by calling Class Financial office right here in Madison six oh eight four four

two five six three seven. Again that telephon number six O eight four four two five six three seven talking rollovers this week with Malia and Kyle, and we left off talking about rolling over your old four oh one K into your new four to oh one K and Malia, I have to imagine that a common option for folks is maybe rolling over that old four oh one K into an Ira.

what you're doing and your choices. And so if you decide to roll over your four oh one K, you will open up an IRA. You can do that by yourself, you can do it at your local bank, you can do it with your financial advisor. And really the objective here is to take your traditional four oh one K or four O three B and you would move that potentially into a traditional IRA. Or similarly, if you had a wroth four oh one K balance, you would want to make sure that is transferred into a wroth IRA

at any of these different institutions. So what you need to keep in mind if you do decide to go with choice number five here rolling that those retirement funds into an IRA, you have to understand this is not a taxable event, certainly not the WROTH. Everyone understands that that money went in after you paid taxes on it, and we'll continue it will continue to grow tax tax tax free. However, the pre tax accounts, the those will not create taxes until you take them out somedays, so

keep that in mind. Not a taxable event. However, as we mentioned before, if you withdraw those funds the pretax from the IRA before the age of fifty nine and a half, you'll likely face a ten percent early withdrawal penalty. So why would you even put it into an IRA. Well, an IRA is going to give you more flexibility for distribution, so that is a common reason people will decide to go this way. So unlike four oh one K plans,

they generally have stricter withdrawal rules. And you know, people don't like to have handcuffs on their own money, you know, so they like the opportunity to say and depending on where they're at in life, maybe they're getting very close to retirement, they want to be able to control the way in which their IRA assets are invested, and if they want to take money out of them, they want to be able to do it at their discretion. So some key considerations for why people do choose to do

a roll over. Besides, the flexibility would be investment selection. So you know you're in an IRA, you're able to choose an investment strategy that maybe aligns better with your time horizon and also your risk tolerance. For example, you might want to invest in a CD within an IRA because that might offer you lower risk, but we have to keep in mind that might offer minimal growth as well, whereas a diversified portfolio of stocks and bonds could provide

better long term potential. So we're not here to say that there aren't four oh one K four three B plans out there that don't have, you know, a host of selections, but they typically have less selections out there choices for you to make, so that again going from ten to one hundred choices or beyond might be important for you. Fees is another reason to con that are

making the choice or not. You have to understand there's investment fees associated with both your old four oh one K and also the new IRA, and so leaving it behind might be the right choice because their fees are considerably less potentially, but again your choices might be limited as well. Timing in RMD rules is the next area. If you retire between the ages of fifty five and fifty nine and a half. And again this goes back

to my beginning point, slow down, slow down. If you're retiring between those ages, our suggestion might be leave your money in that four oh one K because that may allow you to withdraw funds penalty free, whereas rolling it into an IRA could delay that option until age fifty nine and a half. So what I'm talking about here is for persons who are approaching the age of fifty

five still working for the company. It's called separation of service at age fifty five, and they are potentially looking to completely retire, and they need to develop an income stream. If we're able to take money from that four to oh one k again before we've ever moved it over to an IRA. If we can start taking it from the four to oh one K, you will still have to pay taxes on that, but coming out of that vehicle will prevent this age fifty nine and a half

termination fee, so to speak, this penalty. So we've done that with many many clients. It's an important thing to know before you just, you know, blatantly, Oh, I'm just rolling all over to an IRA, and I'll deal with it later. This could actually create some good income for you and not cause you to have that penalty, So make sure you know you're timing. Another area certainly is required minimum distribution. So we've got clients, I'll be honest,

they work into their eighties. Not that you want to shine, but the rest.

to take out the required minimum distributions. And finally, wroth conversions, So if you roll traditional four to one K assets into a wroth ira, as Kyle mentioned earlier, taxes are due at the time of conversion, so you just want to be careful, don't rush through it. Get some good advice as to your situation and what you should do when you do leave an employer and those retirement assets.

eight four four two five six three seven. So Kyle, what if I have maybe employer stock in my four oh one k? Anything I need to consider? There any special considerations in that area.

So always consult your CPA before making this decision, because, as I said, this strategy can be a great thing for some people, but you have to understand what you're getting into. So here's how it works. So typically, when you pull money out of a four to one K, as we've been talking about, your withdrawals are going to be taxed as or so again, whatever tax bracket you're in when you pull as those funds out, that's the

tax rate you're going to pay. However, under the NUA strategy, the growth on employer stock qualifies for the lower long term capital gains tax rate rather than being taxed as ordinary income. So again, think of this as if you've got employer stock inside your foural one K. This is where an anyway strategy could come into play. So what the big thing that you have to be aware of, though, is that the original cost basis of the shares is

subject to ordinary income tax when distributed. So I'm going to give you an example to kind of bring all

this together. So let's say the cost inside your four oh one K is one hundred thousand dollars, meaning that's what you've paid for it, or that's what it was worth as the company was great, and you shares throughout the years, but today when you go to retire, those same shares excuse me, are worth a million dollars, So one hundred thousand dollars basis of million dollars of gain if you elect the any income tax on that one hundred thousand dollars of basis that I just mentioned, but

that remaining nine hundred thousand a million minus the hundred That remaining nine hundred thousand is going to be taxed at long term capital gains tax rates, which for most people is a lot more favorable because the maximum long term capital gains rates actually twenty percent, but most people pay somewhere around fifteen percent for long term capital gains. So these transactions are most beneficial when you've seen substantial growth. So kind of like what I was just explaining out

in my example there. But you've got to be remember there's a few things that have to be met for this to work. So there has to be a triggering event such as a retirement, losing your job, or turning fifty nine and a half. That could be what needs to happen. But the entire four to one K plan must be emptied in one calendar year, so again doesn't mean it all has to come out at one time. You just have to do the NUA transaction and roll the rest of the money out of the four oh

one k in the same calendar year. And that stock must be moved in kind. So if it's whatever your employer's stock is, it has to stay those shares into this new tax will brokerage account. As soon as you move it. You can always sell those shares, but it has to move in kind like that. So these strategies can certainly reduce overall tax liability. They also remove these assets from the tax deferred environment of a retire not right for everybody, as we've been kind of explaining.

Motion with Coss Financial comes your way next right. You're on thirteen ten WIBA talking this week with our retirement planning professionals Malia Quavis and Kyle Kite. Of course they come to us from Class Financial website Coss Financial dot com. That's Coss Klaasfinancial dot com. Tell phone number six oh eight four four to two five six three seven. No charge for that initial get to know you appointment at

Class Financial. It will be complimentary to you again their number six oh eight four four two five six three seven. Hold on to that telephone number as a well. Coming up a little bit later in the segment, we'll do the Class quiz Quench leak your chance to win a twenty five dollars gift card to IOP. Before we get to that, another really cool thing that folks are able to do is email a question for the Money in

Motion listener Question corner and Martha road in. She says, I'm turning sixty five soon and eligible for Medicare, but my spouse is still working and will be uh and we're covered under their employer sponsored health insurance. Should I enroll in Medicare now or should I stay on my spouse's plan? Malia have at it.

enrollment without penalties. So in this case, you might choose to stay on their plan, especially if it offers better coverage or lower costs than Medicare. You know, Medicare just to go off. We had a discussion last week on Medicare coverage. It's not that a lot isn't covered on Medicare coverage, but it is different than what you're probably experiencing being under your the employer plan of your spouse, So you do want to understand what you might be

giving up if you switched over to Medicare. So, if your spouse's employer has fewer than twenty employees, Medicare does become the prime primary payer for you. Your spouse's plan would only pay secondarily, So in this situation you should you should enroll Medicare Part A and Part B to ensure your full coverage and again avoid potential late enrollment penalty. So the key here. You really want to understand are there twenty or more employees with his company or less?

And then also you want to consider the costs and coverage of each option. So Medicare might have lower premiums and out of pocket expenses than your spouse's plan or vice versa. But if you do end up choosing to delay Medicare, you're going to want to sign up during the Special Enrollment Period the SEP once your spouse retires or or you lose coverage, lose their coverage to avoid late penalty. So do some research. I'm glad you checked in with us and best of luck.

eight four four two five six three seven. You can you want to hold on to that telephon number now because it's time for the Coss Quiz question of the week.

If you take a distribution from your four oh one K before the age of fifty nine and a half, you will likely face a ten percent early withdrawal penalty. Is that true or is that false? Telephone number six oh eight four four two five six three seven. First Garth correct answer won the twenty five dollars gift card to the International House of Pancakes. Also, don't forget that's Class Financials office right here in Madison six oh eight

four four two five six three seven. No charge for that initial get to know your appointment at COSS Financial is complimentary to you again their number six o eight four four two five six three seven. Melia Kyle, It's been great chatting with both of you guys. Have a great spring and look forward to talking again real soon.